The Indian government’s bail-out of Yes Bank raises broader questions about the health of India’s private banks, as Marie Kemplay reports.

In the first week of March, India’s central bank was forced to intervene after depositors and bondholders of Yes Bank, India’s fourth largest lender, became increasingly jittery about the ailing bank’s fortunes. The Reserve Bank of India (RBI) announced that it would be replacing the bank’s board and temporarily restricting withdrawals and, most significantly, that the government would be taking a substantial shareholding. State Bank of India, the country’s largest government-owned bank, will be taking a 49% stake in Yes Bank.

Just days later Rana Kapoor, who had been Yes Bank’s chief executive until he was forced to step down in January 2019 by the RBI, was arrested over allegations of money-laundering and fraud.

While the issues at Yes Bank may not be representative, India’s private banking sector more generally is hardly a picture of health.

Banks have been struggling to bring their non-performing loan (NPL) levels down in recent years. Except for Yes Bank, four of the country’s five largest private banks have had some success, with levels dropping or remaining largely flat in 2019 compared with 2018. Yes Bank’s NPL ratio increased from 1.28% in 2018 to 3.22% in 2019, although both Axis Bank and ICICI Bank continue to have higher NPL ratios, at 5.26% and 6.7% respectively.

All five banks have struggled with profitability, with each seeing drops in their return on equity between 2015 and 2019. Yes Bank suffered the most dramatic drop, from 17.15% in 2015 to 6.36% in 2019, although ICICI Bank was not far behind with a drop from 14.84% to 4.72%.

The events at Yes Bank are likely to have shaken confidence in the health of India’s private banks more generally.  

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